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Friday, 23 June 2017

Lord Liverpool became Prime Minister after Spencer Perceval was assassinated in
the lobby of the House of Commons in May 1812. He was the most underrated Prime
Minister in the nineteenth century. described later in the century by Benjamin
Disraeli as an ‘arch mediocrity’. Yet, he was a skilled politician and held
together a government of strong personalities with differing opinions more
prepared to serve under him than under each other. Between 1812 and 1822, he was
faced with economic, political and radical challenges caused by the war against
France and the problem of returning to peacetime conditions after the final
defeat of Napoleon at Waterloo in 1815. Between 1822 and 1827, the government
had considerable energy largely because of the emergence of what has been called
‘liberal Toryism’. It was damaged only by divisions within the Cabinet
especially over the ‘Catholic question’ though even here Liverpool was able to
head off serious tensions by making it an ‘open question’.

Liverpool’s stroke in February 1827 released long restrained
tensions and rivalries. Within three years, his party was in tatters, divided
and without effective leadership. Three Prime Ministers followed in quick
succession. Liverpool’s successor, George Canning[1] died in August within months of gaining office. His
successor, Viscount Goderich[2] was a disaster resigning without ever meeting
Parliament. Finally, the Duke of Wellington took the helm in January 1828.[3] His ministry saw the repeal of the Test and
Corporation Acts in 1828 and Catholic Emancipation the following year.
Wellington’s refusal to accept parliamentary reform led to the fall of his
government in November 1830. The Whigs were in power.

Liverpool became Prime Minister towards the end of the
protracted wars with France. By 1812, the duke of Wellington was winning the war
against the French in Spain. The French defeat at Vitoria in August 1813 allowed
him to cross the Pyrenees and invade France. Napoleon had been weakened by his
unsuccessful invasion of Russia in 1812 and in early 1813 Liverpool and his
Foreign Secretary, Lord Castlereagh[4] were able to set up the Fourth Coalition (Austria,
Russia and Prussia). Napoleon was defeated in the three-day ‘Battle of the
Nations’ at Leipzig in October 1813 and faced with a two-pronged invasion of
France (Wellington from the south and the coalition partners from the east), he
abdicated in 1814. Exiled to Elba, an island in the Mediterranean Napoleon
plotted his return while the allies set about redrawing the boundaries of Europe
at the Congress of Vienna. In March 1815, Napoleon returned to France but was
defeated, in what Wellington called ‘a close-run thing’ at Waterloo in June.
Exile was now permanent and Napoleon was sent to the southern Atlantic island of
St. Helena where he died in 1821. Liverpool faced two major problems in the
seven years after 1815: he needed to reorganise government finances depleted by
the cost of the French Wars; and he had to face and deal with a revival of
working-class radicalism.

How did Liverpool reorganise government finances?

The French wars saw two contradictory trends in the British
economy. The need for uniforms and weapons to feed the war stimulated demand in
increasingly mechanised manufacturing industry, especially textiles and iron and
production increased dramatically. Mechanisation led to working-class resistance
and Luddism.[5] Because of expansion in the agriculture sector,
Britain was less reliant on imported food especially wheat. Large areas of
England had been enclosed during the war. This made farming more efficient and
allowed farmers to increase the amount of food they were producing. They
borrowed money to pay for this but high profits meant that they could easily
repay the banks. They could charge high rents for their land and the price of
wheat remain high because the war restricted imports. By 1815, both industry and
agriculture were outwardly strong but they were geared up for wartime
production. The transition to peacetime proved difficult and posed a series of
fundamental questions that taxed government until the 1840s. What should the
place of agriculture be in an industrialised society? How could the competing
claims of farmers and industrialists be resolved? What was the relationship
between consumers and producers? What role should government have in determining
the overall direction of the economy?

British governments in the late-eighteenth century did not
attempt to control change in the economy. After 1815, unemployment rose because
of the demobilisation of the armed forces and the need to cut labour costs
especially in farming and textiles.[6] In returning the economy to peacetime conditions,
ministers were forced to take a more active role. ‘Corn’ and ‘Cash’ dominated
debates in the 1810s and ‘Commerce’ became important in the 1820s. Each posed
major political problems for the Tories.

‘Corn’

Between 1813 and 1815, corn prices fell following good harvests
in 1813, 1814 and 1815 and the return to peace in 1814 brought unwelcome foreign
grain imports. Farmers and tenants found themselves under pressure. Lower prices
and high wartime taxation meant that they often found it difficult to repay bank
loans. This had the following consequences for the farming sector. There were
many bankruptcies amongst farmers who had borrowed to invest in their land
during the war and who now faced with falling prices. Falling prices led to some
landowners reducing the rents paid by their tenants. Falling prices and a
surplus labour force caused largely by the demobilisation of the armed forces
led to farmers reducing the wages they paid resulting in ‘distress’ in areas
where farming was the main occupation.

These events culminated in the passage of the Corn Law of 1815
that prevented the import of grain until the price fell below 80 shillings a
quarter (28 lbs.) for wheat. As grain prices rarely rose as high as 80
shillings, this measure effectively ensured that local farmers could get a high
price for their grain without foreign competition. Why did Liverpool’s
government decide to introduce legislation seen as unfair and favouring one
sector of society? The protection of farming was not new originating in the Corn
Laws passed in 1773 and 1804. Also, Liverpool could not ignore the fate of one
of the country’s largest single economic interests, whose votes mattered in
Parliament. A Corn Law was justified on the grounds of national security as
Britain might need a reliable domestic supply of food. Finally, legislation was
needed to maintain stability, as agriculture was the largest employer of labour
and higher prices were justified to protect jobs.

Liverpool saw legislation as temporary to help farming return
to normal after the war but the landed interest saw it as permanent or at least
long-term. Parliament was dominated by landowners and farmers and they voted for
legislation that the government had little option but to accept. Previous Corn
Laws had tried to balance the interests of producers and consumers by
maintaining prices at levels acceptable to both. The 1815 Act clearly favoured
the interests of the producers. Manufacturers attacked the legislation.
Parliament was, they argued interfering with the free market in their own narrow
interests. Radical politicians regarded it as class legislation keeping corn
prices artificially high to help farmers while penalising working people through
higher food costs. Reaction was swift. There were petitions and riots in London
in March. Politicians’ houses were attacked and troops had to be brought to the
capital to restore order. Higher food prices fuelled working-class distress
especially in rural England and riots in 1816 and again in 1818 were, in part a
violent reaction to the Corn Laws.

Even so, there were demands from tenant farmers for further
protection of farming after 1815 especially during the agricultural crisis of
1821-1823. However, political attitudes were changing. Liverpool was convinced,
largely by the actions of radicals between 1815 and 1821 that governments that
pandered to farmers at the expense of working-class consumers or tax-paying
industrialists had a dangerously narrow political base. He made his own position
clear in February 1822: ‘The agricultural is not the only interest in Great
Britain. It is not even the most numerous.’ Farmers were being told bluntly that
they no longer dictated government policies. Abolition of the Corn Laws was not
practical but reform was. The government introduced minor changes in 1822 but
price levels meant that they never came into operation. Liverpool regarded this
as an interim measure while considered a more permanent solution.

Rising wheat prices from 1823, the financial crisis in 1825 and
growing depression in manufacturing industry in 1826 brought fresh demands for
the abolition of duties on foreign grain. Manufacturers lobbied Parliament and
anti-Protectionists tried to make it an issue in the 1826 General Election.
Liverpool made it clear in 1826 that he intended to revise the 1815 Act the
following year. The 1827 and 1828 Corn Laws introduced by Canning and Huskisson
respectively completed the process begun in 1822. These acts provided a sliding
scale of duties that operated from 60 shillings and reduced to a nominal rate at
73 shillings a quarter. They were a compromise because of disagreement in the
Cabinet on how best to handle this sensitive issue.

‘Finance’

Britain’s financial state in 1815 was not healthy: the French
wars had been expensive, taxation was high and unpopular and ‘cheap’ paper money
had been circulating since 1797 when Britain had gone off the Gold Standard[7] and the Bank of England had suspended payments in
gold and silver and began to issue paper currency (£1 and £2 notes). Income tax
(direct taxation)[8] brought in about a fifth of government income.
Working-class radicals argued that indirect taxes[9] (duties or tariffs) pushed food prices up and hit
working people unfairly. In 1814-1815, government spending exceeded income from
taxation by 45 per cent. The national debt had risen from £238 million in 1793
to £902 million in 1816. Roughly, eighty per cent of government expenditure was
needed simply to pay the interest on loans.

Reducing public spending and paying off its debts (a process
called retrenchment) was a major priority for Liverpool’s government after 1815.
Liverpool recognised that the transition to lower peacetime taxation would take
time. What Liverpool and his Chancellor Nicholas Vansittart needed was a period
of financial stability. Income tax was central to this stability. By 1815, it
accounted for a fifth of all government income and while it had never been
popular, it had been tolerated. With the end of the war, demands for its
abolition increased and in 1815 and 1816 the Whigs organised a national campaign
against it. This was successful and in 1816, Liverpool failed, by thirty-seven
votes, to continue the tax.

Abolishing income tax may have been popular but it left
government finances in chaos. To make up the lost income, Liverpool had to
reduce government spending, borrow money and increase indirect taxation.
£340,000 was trimmed from defence spending in 1816. Government departments
pruned and a ten per cent cut was made in official salaries. Liverpool could do
little to reduce spending further. By 1818, he controlled only nine per cent of
revenue. The rest was swallowed up servicing the interest on the National Debt,
war pensions and interest on loans necessary to meet the deficit of £13 million.
There was an overwhelming need for reform of the financial system.

Liverpool recognised that sustained economic growth meant a
return to ‘sound money’ (low levels of interest and cash payments in gold and
silver rather than paper currency). He set up a Select Committee on Currency
chaired by Sir Robert Peel. In May 1819, it recommended the gradual resumption
of cash payments by 1823. This transition was achieved ahead of time and from
1821, Britain was back on the Gold Standard. Financial experts favoured the end
of wartime paper currency arguing that a return to a fixed Gold Standard was
essential to a sound monetary policy. The landed interest supported cash
payments. For them, it meant a return to ‘proper’ money and the end of a paper
currency that represented financial speculation, industrialisation and
uncontrolled urban development. Industrialists in the northern textile towns, by
contrast, saw the decision as premature.

By 1818, government income through taxation covered the costs
of government spending or a balanced budget. However, Liverpool still faced the
problem of having to continue to borrow money from the London money market to
pay off existing debts. Interest rates rose after 1815 and the government had to
borrow money at high rates of interest to service existing debts. This led to a
rising National Debt. The radical press, landowners who had to pay higher
interest charges on loans but were faced with lower agricultural prices and
industrialists were critical of ‘tax eaters’ and ‘fund holders’ who seemed to be
holding the nation to ransom. The case of a review of the national system of
finance was necessary economically and politically. A second committee looked at
government finance (taxation, spending and borrowing). The recommendations of
this committee led to Vansittart’s budget of 1819 that imposed £3 million of new
taxes, including a new malt tax, and took £12 million out of government reserves
to balance the budget. This was seen to herald a ‘new system of finance’. It
established the two principles of fiscal management that dominated the remainder
of the century: government should aim for a surplus of income from taxation over
government spending; and that a balanced or surplus budget helped to restore
public confidence in government.

‘Trade’

Liverpool recognised that a revival in trade and manufacture
was essential if his fiscal policy was to work effectively. ‘Trade’ was the
third strand of his policies. It was thought that removing tariffs on imports
and loosening commercial regulations would stimulate the sluggish economy but
Liverpool’s approach was cautious. The government derived much of its income
from customs and excise. Farmers were suspicious of moves towards freer trade,
as they believed this would inevitably lead to the repeal of the Corn Laws.[10] Many merchants and manufacturers supported
protection in markets in which they were weak arguing for freer trade only where
they had the competitive advantage. Liverpool echoed these attitudes in a speech
on trade in the House of Lords on 26 May 1820 that was guarded in its approach.
He made clear the advantages of freer trade but he reassured his audience that
he was not considering abandoning agricultural protection and believed that
absolute free trade was out of the question. Two committees were established to
lay down strategies for implementing the move to freer trade. Thomas Wallace,
Vice-President of the Board of Trade played a central role arguing that freer
trade would help industries out of depression, encourage the search for new
markets and generate employment. With Vansittart, he drew up the blueprints for
the reforms that Frederick Robinson, Vansittart’s successor as Chancellor and
William Huskisson undertook after 1823.

In 1819 and 1820, Liverpool had established clear guidelines
for the development of new financial and commercial policies. Sound money
policy, together with these reforms, led to a dramatic increase in government
revenue. By 1822, the government was in surplus and Robinson’s budget had excess
revenue of £5 million. In 1823, he budgeted for a surplus of £7 million of which
£5 million was used to repay debts leaving £2 million for tax cuts. Surplus
budgets in 1824 and 1825 allowed reductions in excise duties on a range of
consumer goods and raw materials including coal, iron and wood and on spirits,
wine, rum, cider and coffee. In fact, there were budget surpluses until 1830
though they were insufficient to allow further tariff reductions. The limits of
tax reduction had been reached and Liverpool recognised, as early as 1824 that
the only way out of this financial stalemate was the reintroduction of income
tax. John Herries, Chancellor of the Exchequer under Goderich was preparing to
do so when the ministry collapsed in early 1828 and Henry Goulburn, Wellington’s
Chancellor was only prevented in doing so in the 1830 budget because of the
Prime Minister’s opposition.

Changes in commercial policy began in 1821 when Wallace reduced
duties on timber imports. The following year he simplified the Navigation Acts
allowing the colonies freer trade with foreign countries while Anglo-colonial
trade was still restricted to British ships. In 1823, Wallace resigned when
William Huskisson[11] became President of the Board of Trade and he has
not received the credit for developing the commercial policies that Huskisson
then implemented. In 1823, the Reciprocity of Duties Act reduced tariffs if
other countries would follow suit and by 1827, most European countries and the
United States had negotiated agreements for mutual abolition or adjustment of
discriminatory tariffs. Foreign ships were allowed freer access to British ports
especially London which became the centre of world trade. The policies of
Wallace and Huskisson proved very successful and there was a sixty-four per cent
increase in tariff revenue between 1821 and 1827.

Just how committed was Liverpool’s government to free trade?
Barry Gordon regards Wallace’s decision in 1821 to reduce timber duties as ‘the
first practical step towards implementation of laissez-faire in the post-war
period’. Boyd Hilton disagrees seeing the free trade commercial policies of the
1820s as motivated by very practical considerations: the 1821 Agricultural
Report made it clear that the United Kingdom could no longer feed itself and
the Corn Laws were seen as an obstacle to getting the necessary food from the
continent. A reliable and cheap food supply was essential to maintain public
order. In Boyd Hilton’s view, free trade reform was based on fiscal and
agricultural policies designed to stabilise rather than expand the economy.
Norman Gash argues that Liverpool’s economic policies were essentially ‘social’
in character. His aim was to make the economy more prosperous and as a result
reduce working-class discontent.

Liverpool supported the abolition of legal restrictions on the
export of machinery, emigration of artisans and trade unions. He was prepared to
legislate to deal with particular problems. The Poor Employment Act of 1817
offered government loans for public work schemes to help the unemployed. In
1819, a Factory Act regulated the employment of children in textile mills and
the legal position of Friendly Societies[12] was clarified. Restrictions were imposed on trade
unions in 1825 a year after the repeal of the Combination Acts. These were
limited in scope and largely ineffective in practice. Neither Liverpool nor
Huskisson were doctrinaire free traders. Their policies were based on a
hard-nosed assessment of the economic advantage Britain could gain, the
prosperity and political stability this would bring.

[1] George Canning (1770-1827) entered Parliament in 1784
and held various government offices including Foreign Secretary (1807-1808,
1822-1827). He became Prime Minister and Chancellor of the Exchequer a short
time before his death in August 1827.

[2] Frederick Robinson, 1st Viscount Goderich (1782-1859)
was Chancellor of the Exchequer between 1823 and 1827. He was asked to serve as
Prime Minister after the death of his friend Canning but was unable to control
his ministers. He resigned in January 1828. In 1833, he was created Earl of
Ripon and served as Whig Lord Privy Seal (April 1833-May 1834) but later joined
the Conservative Party serving as a minister between 1841 and 1843 in Peel’s
government

[3] Arthur Wellesley, 1st Duke of Wellington (1769-1852)
rose to fame as a military leader in the French wars culminating in his victory
over Napoleon at Waterloo in 1815. He was Prime Minister between 1828 and
November 1830. A sound military leader, he lacked the political flexibility to
be a good Prime Minister and party leader.

[4] Robert Stewart, Viscount Castlereagh, 2nd Marquess of
Londonderry (1769-1822) was Foreign Secretary between 1812 and 1822. He was very
influential at the Congress of Vienna at the end of the French wars especially
his ideas about a European balance of power. Highly-strung and almost incapable
of taking criticism, he committed suicide

[5] The Luddites were machine breakers who operated in
Nottinghamshire, south Lancashire and Yorkshire between 1811 and 1813. The term
‘Luddism’ is often applied more generally to any movement in which machines were
smashed to protect existing technologies and employment.

[6] Up to a quarter of a million soldiers and sailors were
demobilised in 1815 and 1816. Unemployment went up dramatically because it did
not prove possible to absorb so many people into work

[7] Gold Standard. System under which a country’s currency
is exchangeable for a fixed weight of gold on demand at the central bank.

[8] Direct taxation was taxes levied on individuals
directly. The most widespread was income tax introduced in 1797 by William Pitt.
It was abolished in 1816 but revived by Sir Robert Peel in 1842.

[9] Indirect taxes were taxes imposed on good or services
usually collected when the good move from one country to another (customs and
excise duties) or at the point of sale. Tariffs are duties paid on goods.

[10] Free Trade--shorthand for the doctrine of
laissez-faire—is the doctrine of non-interference by the state in economic
matters. It derived from the teachings of classical economists like Adam Smith,
Malthus and David Ricardo.

[11] William Huskisson (1770-1830) was President of the
Board of Trade 1823-1827 where he continued the work of William Pitt on fiscal
reform. He died after being knocked down by a locomotive at the opening of the
Liverpool-Manchester railway in September 1830.

[12] Friendly Societies were set up often by working people
to provide insurance for workers to cover things like sickness, unemployment and
burial costs.